1. That, the Commissioner of Income-tax (Appeals), erred in law in holding that the fact that the assessee did not claim deduction for gratuity liability of Rs. 3,17,911 at the time of assessment is no bar to the consideration of this claim on merit at the appeal stage ; 2. that the Commissioner of Income-tax (Appeals) erred in law as well as on facts in holding that the provision for initial contribution to an approved gratuity fund is deductible under Section 36(1)(v) of the Income-tax Act, 1961 ; 3. that, the Commissioner of Income-tax (Appeals), erred in law in allowing the deduction of Rs. 3,17,911 on account of provision for gratuity liability ignoring the provisions of Section 155(13) of the Income-tax Act, 1961 ; 4. that, the Commissioner of Income-tax (Appeals), erred in law as well as on facts in allowing the provision for Rs. 3,17,911 for payment of gratuity for the period up to 31-3-1973 in the assessment for the assessment year 1974-75.
2. In the original assessment the assessee claimed deduction of Rs. 81,497 being provision for payment of gratuity. The ITO negatived that claim of the assessee and on appeal the AAC set aside the assessment on this point and directed the ITO to reconsider the assessee's claim and allow deduction of the provision for gratuity after being satisfied that the conditions prescribed under Section 40A(7)(b) of the Income-tax Act, 1961 ('the Act') are fulfilled. Subsequently, the assessee filed an application under Section 154/155(13) of the Act read with Section 40A(7) on 6-5-1980 in which the assessee requested the ITO to allow deduction of Rs. 3,17,911 being gratuity payable up to 31-3-1973 as per actuarial valuation. The ITO negatived this claim of the assessee on the ground that the assessee did not claim any such deduction at the time of regular assessment. According to the ITO, under Section 154 the assessee can ask for rectification only of that part of the provision for gratuity which was wrongly claimed by the assessee at the time of assessment and disallowed by the ITO.3. On appeal to the Commissioner (Appeals), it was contended on behalf of the assessee that the provision of Rs. 3,17,911 for gratuity payable up to 31-3-1973 was made as per actuarial valuation which appeared in the balance sheet as provision for gratuity. It was, therefore, urged that there was initial contribution to an approved gratuity fund but no deduction for such contribution was claimed before the ITO at the time of original assessment. It was next urged that the fact that no specific claim was made at the time of assessment did not disentitle the assessee to the deduction if it was otherwise admissible under the law since the audited accounts indicated that there was provision for such initial contribution. Reliance was placed on the decisions in CIT v. Gangappa Cables Ltd. [1979] 116 ITR 778 (AP), Chokshi Metal Refinery v. CIT [1977] 107 ITR 63 (Guj.), CIT v. Ahmedabad Keiser-E-Hind Mills Co. Ltd. [1981] 128 ITR 426 (Guj.) and Nathmal Bankatlal Parikh & Co.
v. CIT [1980] 122 ITR 168 (AP) (FB). It was also submitted that the initial contribution to an approved gratuity fund was deductible from the total income under Section 36(1)(v) of the Act read with Rule 104 of the Income-tax Rules, 1962 ('the Rules'). It was pointed out that the gratuity fund was approved by the Commissioner, by his letter dated 26-4-1980 and the claim for such deduction was made in the assessee's application dated 6-5-1980. It was, therefore, urged that on approval to the gratuity fund the provisions contained in Section 155(13) became applicable and since the amount was not allowed in the original assessment rectification as provided in the said section could be made, provided the time limit of four years prescribed therein had not run out. The Commissioner (Appeals) after going through the facts of the case as also interpreting the provisions of Section 155(13), read with Rule 104, came to the conclusion that the assessee was entitled to deduction of Rs. 3,17,911. He directed accordingly.
4. Against the said order of the Commissioner (Appeals) the revenue preferred the present appeal before us. It was contended by the learned departmental representative that the Commissioner (Appeals) was wrong in his finding that the petition filed by the assessee under Section 154 was within the prescribed time in view of the provisions of Section 155(13). He urged that admittedly the assessee did not prefer any claim for deduction of Rs. 3,17,911 during the regular assessment proceedings and, therefore, it could not be said that there was a patent mistake in the regular assessment in not allowing the assessee's claim for deduction of Rs. 3,17,911. He relied on the decisions of the Calcutta High Court in the cases of Katihar Jute Mills (P.) Ltd. v. CIT [1979] 120 ITR 861 and Surrendra Overseas Ltd. v. CIT [1979] 120 ITR 872 for the proposition that the ITO had no jurisdiction to consider the admissibility or otherwise of any deduction in the set aside assessment if that claim was not the subject-matter of consideration before the AAC. The learned departmental representative pointed out that the claim of the assessee regarding deduction towards gratuity liability before the AAC was confined to Rs. 81,497. He, therefore, submitted that the Commissioner (Appeals) was wrong in his finding that the assessee was entitled to deduction of Rs. 3,17,911 being provision for payment of gratuity. The learned counsel for the assessee, on the other hand, contended that the decisions of the Calcutta High Court in Katihar Jute Mills (P.) Ltd.'s case (supra) and Surrendra Overseas Ltd.'s case (supra) had no application to the facts of the present case. He urged that the assessee's claim for deduction of Rs. 3,17,911 was based on the profit and loss account as also the relevant balance sheet. He urged that in view of the clear provisions of Section 155(13) the Commissioner (Appeals) was justified in allowing the assessee's claim for deduction of Rs. 3,17,911 towards payment of gratuity liability which was also based on actuarial valuation. Reliance was placed on the decision of the Allahabad High Court in the case of Addl. CIT v.Balrampur Raj Electric Supply Co. [1981] 128 ITR 615. It was urged by1 the learned counsel for the assessee that the entire claim of the assessee was an admissible deduction. The learned counsel for the assessee also highlighted the reasons given by the Commissioner (Appeals) for coming to the conclusion that the assessee was entitled to deduction of Rs. 3,17,911.
5. It was not in dispute that the assessee during the regular assessment proceedings claimed deduction of Rs. 81,497 being liability for payment of gratuity during the assessment year under appeal. That claim of the assessee was negatived by the ITO. The assessee, however, preferred an appeal before the AAC and the only ground raised before the AAC was that the assessee was entitled to deduction of Rs. 81,497 being liability for gratuity incurred under the Payment of Gratuity Act, 1972 and provided in the accounts for the year on the basis of actuarial valuation. Therefore, the AAC had occasion to consider the admissibility of the deduction regarding gratuity liability to the extent of Rs. 81,497 only. The claim of the assessee for deduction of Rs. 3,17,911 was made neither before the ITO nor before the AAC. That being the position, we are of the opinion that there was no patent mistake in the regular assessment which was sought to be rectified by the assessee by tiling an application under Section 154. As has been held by the Allahabad High Court in the case of Sharda Prasad v. CIT [1975] 100 ITR 373, deductions or rebates, although legally allowable but not claimed or allowed, do not constitute mistakes apparent from record.
6. It is pertinent to note that the claim of the assessee for deduction of Rs. 3,17,911 was based on the provisions of Section 155(13). The Commissioner (Appeals) decided the issue in favour of the assessee by following the provisions of Section 155(13). Much reliance was placed by the learned counsel for the assessee on Section 155(13). But, as we see, Section 155(13) was inserted by the Finance Act, 1975, which took effect from 1-4-1975, but the previous year relevant to the assessment year under appeal ended on 31-3-1974. We are, therefore, of the opinion that the provisions of Section 155(13) had no application to the instant case. Accordingly, we would hold that the Commissioner (Appeals) was wrong in his direction of allowance of the assessee's claim for deduction of Rs. 3,17,911. We, therefore, reverse the order of the Commissioner (Appeals) and restore that of the ITO.